Cash Basis Possible For Small Retail Businesses With Inventory?
Hi all, question - Do you have to use accrual basis for your business if you're just purchasing and reselling merchandise for inventory? It seems possible to use cash basis but what if you purchase inventory on account and sell those items soon after on a cash basis? Can you still record the bill received and book inventory?
Let me go over and discuss further details about your concern.
In QuickBooks Desktop (QBDT), the Accrual basis is used for transactions you entered at the time you process them and when you actually pay or receive cash. On the other hand, if you consider income or expenses to occur at the time you get a payment or pay a bill, you must utilize the Cash basis as your bookkeeping method. You'll learn more about this by visiting this article: Differentiate Cash and Accrual basis.
Then, to ensure you use the correct accounting method, I recommend reaching out to your accountant. This way, they can advise you on what method suits your business and assist you in setting up your account to manage your inventory seamlessly.
This is the best article I have come across that discusses this issue. It used to be (pre-2018) that the answer was you need to use the accrual method if inventories were necessary to clearly reflect income. Now, with the TCJA, the waters are a bit murkier.